Fitch Ratings has highlighted that Chile's ability to implement its proposed budget reform and effectively reduce public spending is paramount to arresting the country's rising national debt. Todd Martínez, co-director of sovereign ratings for the Americas at Fitch, noted that while the government's "megarreforma" addresses key investment-related issues, the rating agency needs to observe sustained positive effects before revising its long-term growth forecasts for Chile. Fitch maintains Chile's sovereign rating at "A-" with a stable outlook, which is the best in Latin America.
Martínez specifically warned that a continued upward trajectory in Chile's debt-to-GDP ratio, particularly if it exceeds 45% without a concrete stabilization plan, could jeopardize its current credit rating. He acknowledged the government's commitment to cut public spending by $6 billion but emphasized the need for clarity on where these cuts will come from and whether they will be structural or temporary. Fitch anticipates the reform package carries a direct fiscal cost of approximately 0.5% of GDP and remains skeptical that tax reductions will be fully offset by increased economic growth.
Chile's Finance Minister Jorge Quiroz previously abandoned the goal of balancing the structural budget by 2030, now targeting a structural deficit of 1.5% of GDP by the end of the current administration's term. This adjustment comes as the government struggles with fiscal shortfalls and an economic downturn, facing warnings about a wider budget deficit. While higher copper and lithium prices could temporarily improve the effective deficit, Fitch stressed the importance of permanent adjustments to public accounts. Fitch currently projects Chile's economy to grow around 1% in 2026 and nearly 3% in 2027.
